For the first time in several months, the Special Situations Real Money Portfolio was down for the month. As of the market close on February 26, 2010, the portfolio had a total balance of $30,697.24. That is down 1.17% from the January Special Situations Real Money Portfolio closing balance of $31,057.05. Year-to-date the portfolio is down 0.78%.
The main issue this month was that none of the deals I’m invested in came to completion. It was a rather boring month in general. There have been very few new opportunities and there hasn’t been much activity on existing deals. This pattern makes me wonder if the economy is at an inflection point or whether it is just stagnating.
I did pick up some shares of a stock trading below two-thirds of net current asset value. Right after I picked up the shares, the price promptly dropped 15% the next day. I kept my wits and doubled my position at the new low. I always find it mentally challenging to double down on a position so quickly, but it often proves to be the wise thing to do.
I also picked up an odd lot tender offer. However, I made an error this time. I learned that if you participate in tender offers for foreign company shares you have to be aware of potential tax withholdings. Foreign taxes can be imposed even in a tax sheltered account, like Coverdell Education Savings Account, which is what the Special Situations Real Money Portfolio is. My plan on this position will be to hold it until it produces a slight gain and then sell it before the tender offer expires. If the share price falls substantially before then, I’ll tender the shares and face the 15% tax withholdings. Live and learn.
Overally, the Special Situations Real Money Portfolio is up 155.81% since inception on October 19, 2004. The internal rate of return or average annualized rate of return is still an impressive 29.07%. If you’d like to learn more about the positions I’ve been trading in this portfolio, follow my research on new special situations, and participate in our exclusive community of stock workout aficionados, consider joining my premium service, Fat Pitch Financials Contributors Corner.